UNITED STATES
                   SECURITIES AND EXCHANGE COMMISSION
                    WASHINGTON, D.C. 20549



                      ----------------------------



                                FORM 10-Q



        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
                     SECURITIES EXCHANGE ACT OF 1934



              For the quarterly period ended September 30, 1998



                     Commission File Number 0-20516
                    --------------------------------



                      MASON-DIXON BANCSHARES, INC.
                     ------------------------------
         (Exact name of Registrant as specified in its charter)



                Maryland                                 52-1764929
               ----------                               ------------
     (State or other jurisdiction of                  (I.R.S. Employer
     incorporation or organization)                  Identification No.)



 45 W. Main Street, Westminster, Maryland                  21157
------------------------------------------                -------
 (Address of principal executive offices)                (Zip Code)



                             (410) 857-3401
                         ----------------------
           Registrant's telephone number including area code:



Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceeding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.


                     Yes   X                No
                         -----                 -----



The number of shares outstanding of the registrant's common stock on
September 30, 1998: Common Stock, $1.00 Par Value --- 5,058,527


PART I  -  FINANCIAL INFORMATION
ITEM 1.  FINANCIAL STATEMENTS



                                             MASON-DIXON BANCSHARES, INC.
<TABLE>
                                              CONSOLIDATED BALANCE SHEET
<CAPTION>

                                                                   September 30,       December 31,
(Dollars in thousands)                                                      1998               1997
--------------------------------------------------     ---------------------------------------------
<S>                                                            <C>                 <C>
ASSETS

Cash and due from banks                                        $          22,150   $         20,245
Interest bearing deposits in other banks                                     416                482
Federal funds sold                                                        10,449             17,236

Investment securities available for sale (AFS) - at fair value           364,166            249,855
Investment securities held to maturity (HTM) - at amortized cost         188,595            204,045
     (fair value $178,856 and $206,515 respectively)

Loans held for sale                                                        2,326              4,439
Loans (net of unearned income of $22 and $341)                           461,428            460,391
  Less:  Allowance for credit losses                                      (9,193)            (5,231)
                                                                        --------           --------
    Loans, net                                                           452,235            455,160

Bank premises and equipment                                               14,374             15,530
Other real estate owned                                                      400                685
Deferred tax assets                                                        5,240              6,089
Mortgage sub-servicing rights                                              2,289              3,412
Intangible assets                                                          6,825              2,956
Accrued interest receivable and other assets                              13,818             12,046
                                                                        --------           --------
    Total Assets                                               $       1,083,283   $        992,180
                                                                        ========           ========

LIABILITIES

Non-interest bearing deposits                                  $          85,271   $         89,692
Interest bearing deposits                                                527,937            561,557
                                                                        --------           --------
    Total Deposits                                                       613,208            651,249

Short-term borrowings                                                     48,860             97,203
Long-term borrowings                                                     328,637            160,889
Accrued expenses and other liabilities                                    10,850              7,390
                                                                        --------           --------
    Total Liabilities                                                  1,001,555            916,731

STOCKHOLDERS' EQUITY
Common stock - $1.00 par value, authorized:
  10,000,000 shares, issued and outstanding;
   5,058,527 shares (1998) and 5,077,468 shares (1997)                     5,059              5,077
Surplus                                                                   35,402             35,948
Retained earnings                                                         37,769             32,275
Accumulated other comprehensive income                                     3,498              2,149
                                                                        --------           --------
    Total Stockholders' Equity                                            81,728             75,449

    Total Liabilities & Stockholders' Equity                   $       1,083,283   $        992,180
                                                                        ========           ========


Note:  The balance sheet at December 31, 1997 has been derived from the audited financial statement at that date.

See notes to the consolidated financial statements.
</TABLE>

                                                   MASON-DIXON BANCSHARES, INC.
<TABLE>
                                                   CONSOLIDATED INCOME STATEMENT
<CAPTION>

                                                             Three Months Endi     Nine Months Ending
                                                        September 30,         September 30,
(Dollars in thousands, except per share data)               1998       1997       1998       1997
--------------------------------------------------------------------------------------------------
<S>                                                    <C>        <C>       <C>         <C>
Interest Income:
  Interest and fees on loans                           $  11,899  $  10,047 $   36,857  $  28,659
  Interest on deposits in other banks                        255         96        293        146
  Interest on federal funds sold                             239        254      1,052        836
  Interest and dividends on investment securities:
    Taxable interest on mortgage-backed securities         4,117      4,676     12,608     12,993
    Other taxable interest and dividends                   3,009      1,447      6,929      3,294
    Tax exempt interest and dividends                      1,153      1,200      3,547      3,412
                                                        --------   --------   --------   --------
    Total interest income                                 20,672     17,720     61,286     49,340

Interest Expense:
  Interest on deposits:
    Time certificates of deposit of $100,000 or more         657        602      1,750      1,550
    Other deposits                                         5,154      5,542     16,651     16,348
                                                        --------   --------   --------   --------
      Total interest on deposits                           5,811      6,144     18,401     17,898

Interest on short-term borrowings                            784      1,602      3,142      3,345
Interest on long-term borrowings                           4,783      2,164     11,334      4,783
                                                        --------   --------   --------   --------
    Total interest expense                                11,378      9,910     32,877     26,026
                                                        --------   --------   --------   --------
Net interest income                                        9,294      7,810     28,409     23,314

Provision for credit losses                                  125        (12)     3,614         96
                                                        --------   --------   --------   --------
Net interest income after provision for credit losses      9,169      7,822     24,795     23,218
                                                        --------   --------   --------   --------
Other Operating Income:
  Service charges on deposit accounts                        469        560      1,546      1,660
  Trust Division income                                      417        380      1,247      1,096
  Gain on sale of securities                                 148         26        505        334
  Gain on sale of mortgage loans                             473        518      1,466      1,179
  Gain on sale of branches                                     0          0      6,717          0
  Other income                                               893        470      2,469      1,400
                                                        --------   --------   --------   --------
    Total other operating income                           2,400      1,954     13,950      5,669
                                                        --------   --------   --------   --------
Other Operating Expenses:
  Salaries and employee benefits                           5,597      4,146     15,851     11,730
  Net occupancy expense of bank premises                     683        638      2,030      1,886
  Furniture and equipment expenses                           464        313      1,435      1,238
  Legal and professional fees                                256        275        827        940
  FDIC insurance expense                                      17         20         59         58
  Outside data processing expense                            192        273        866        835
  Amortization of mortgage sub-servicing rights               76        104      1,123        311
  Amortization of other intangibles assets                   172        111        471        358
  Other expenses                                           1,290        837      4,491      2,486
                                                        --------   --------   --------   --------
    Total other operating expenses                         8,747      6,717     27,153     19,842
                                                        --------   --------   --------   --------
Income before income taxes                                 2,822      3,059     11,592      9,045
Income tax expense                                           586        771      3,508      2,333
                                                        --------   --------   --------   --------
Net Income                                             $   2,236  $   2,288 $    8,084  $   6,712
                                                        ========   ========   ========   ========

Per Share Data:
  Cash Dividend Paid                                   $    0.17  $    0.15 $     0.51  $    0.45

  Net Income (Basic)                                   $    0.44  $    0.45 $     1.59  $    1.29
  Net Income (Diluted)                                 $    0.44  $    0.45 $     1.59  $    1.29
  Average Shares Outstanding (Basic)                    5,074,341  5,069,413  5,077,806  5,220,441
  Average Shares Outstanding (Diluted)                  5,078,419  5,071,327  5,082,489  5,221,284

</TABLE>

                                        MASON-DIXON BANCSHARES, INC.
<TABLE>

<CAPTION>

                                                                          For the Period Ended
                                                                                    September 30,
(Dollars in thousands)                                                         1998                1997
--------------------------------------------------------------------------------------------------------
<S>                                                                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income                                                          $         8,084     $         6,712
Adjustments to reconcile net income to net cash provided by operating activities:
     Depreciation                                                             1,202               1,190
     Amortization of mortgage sub-servicing rights                            1,123                 311
     Amortization of intangibles                                                454                 357
     Net accretion of purchase accounting adjustments                          (206)               (312)
     Provision for credit losses                                              3,614                  96
     Provision for deferred taxes                                                 0                 314
     Proceeds from sales of investment securities - Trading                      20               3,177
     Purchases of investment securities - Trading                                 0              (3,152)
     Originations of loans held for sale                                    (35,904)            (31,788)
     Proceeds from sales of loans held for sale                              39,483              33,019
     Net gain on sale of assets/liabilities                                  (8,658)             (1,514)
     Net (increase) decrease in accrued interest receivable and other        (1,330)             (1,745)
     Net increase (decrease) in accrued expenses and other liabilitie         1,213              (1,645)
     Other - net                                                               (198)                325
                                                                            -------             -------
    Net cash provided by operating activities                                 8,897               5,345
                                                                            -------             -------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from maturities of investment securities - HTM                   57,429              14,455
   Purchases of investment securities - HTM                                 (41,953)            (28,784)
   Proceeds from maturities of investment securities - AFS                   58,499              18,541
   Proceeds from sales of investment securities - AFS                        62,041              55,212
   Purchases of investment securities - AFS                                (232,376)           (149,358)
   Net (increase) decrease in loans                                         (17,078)            (50,828)
   Capital expenditures                                                      (1,920)             (1,073)
   Proceeds from sale of assets/liabilities                                  10,292                   0
   Sale of branches                                                         (28,882)                  0
   Acquisitions of subsidiaries, net of cash acquired                       (14,993)                  0
                                                                            -------             -------
    Net cash used by investing activities                                  (148,941)           (141,835)
                                                                            -------             -------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net increase (decrease) in deposits                                       49,211              27,992
   Net (decrease) increase in short-term borrowings                         (78,686)             62,939
   Proceeds from long-term borrowings                                       179,350             114,402
   Repayments of long-term borrowings                                       (11,625)            (63,493)
   Issuance of additional shares of common stock                                455                 449
   Repurchase of common stock                                                (1,019)             (5,413)
   Dividends paid                                                            (2,590)             (2,352)
                                                                            -------             -------
    Net cash provided by financing activities                               135,096             134,524
                                                                            -------             -------

Net increase (decrease) in cash and cash equivalents                         (4,948)             (1,966)
Cash and cash equivalents at beginning of year                               37,963              46,346
                                                                            -------             -------
Cash and cash equivalents at end of period                          $        33,015     $        44,380
                                                                            =======             =======


See notes to the consolidated financial statements.
</TABLE>

                                               MASON-DIXON BANCSHARES, INC.
<TABLE>
                                CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<CAPTION>

                                         FOR THE PERIOD ENDED SEPTEMBER 30, 1998 AND 1997

                                                                                                       Accumulated
                                                                                                       Other
                                                       Common                          Retained        Comprehensive
(Dollars in thousands)                                 Stock           Surplus         Earnings        Income
---------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>             <C>             <C>
Balance at December 31, 1996                          $   5,303       $  40,560       $  26,331       $     505

Net income (1st nine months 1997)                             0               0           6,712               -

Issuance of additional shares of common stock                20             429               0               -

Repurchase of shares of common stock                       (250)         (5,163)              0               -

Cash dividend @ $.45 per share                                0               0          (2,352)              -

Net unrealized losses on available-for-sale
   securities (net of tax)                                    0               0               0           1,139
                                                        -------         -------         -------         -------
Balance at September 30, 1997                             5,073          35,826          30,691           1,644

Net income (4th quarter 1997)                                 0               0           2,447               -

Issuance of additional shares of common stock                 4             122               0               -

Repurchase of shares of common stock                          0               0               0               -

Cash dividend @ $.15 per share                                0               0            (863)              -

Net unrealized gains on available-for-sale
   securities (net of tax)                                    0               0               0             505
                                                        -------         -------         -------         -------
Balance at December 31, 1997                              5,077          35,948          32,275           2,149

Net income (1st nine months 1998)                             0               0           8,084               -

Issuance of additional shares of common stock                14             441               0               -

Repurchase of shares of common stock                        (32)           (987)              0               -

Cash dividend @ $.51 per share                                0               0          (2,590)              -

Unrealized holding (losses)/gains on available-for
   sale securities arising during the period (net of ta       0               0               0           1,703

Less:  Reclassification adjustment for losses
   realized in net income                                     0               0               0            (354)
                                                        -------         -------         -------         -------
Balance at September 30, 1998                         $   5,059       $  35,402       $  37,769       $   3,498
                                                        =======         =======         =======         =======
</TABLE>

                                        MASON-DIXON BANCSHARES, INC.
<TABLE>
                               NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



Note 1.  The foregoing financial statements are unaudited, however, in the opinion of Management, all adjustments
(consisting of normal recurring accruals) necessary for a fair presentation of the financial statements have been
included.  Certain amounts for prior periods have been reclassified to conform to current period presentation.
These statements should be read in conjunction with the financial statements and notes thereto included in the
Company's 1997 Annual Report on Form 10-K.


Note 3.  Investment Securities
<CAPTION>
                                                     Available-for-Sale               Held-to-Maturity
                                                  September 30,   September 30,   September 30,   September 30,
(Dollars in thousands)                                  1998            1997             1998            1997
------------------------------------------------------------------------------------------------------------------
<S>                                               <C>             <C>             <C>             <C>
     U.S. Treasury securities and agency notes    $  153,918      $   45,829      $   33,297      $   37,796
     Obligations of U.S. government agencies          96,059          15,224          11,571         132,185
     Obligations of states and political subdivisio        0          84,752          88,904               0
     Collateralized mortgage obligations              84,946          61,442          47,899          55,055
     Other securities                                 23,543             248           6,924          15,109
     Unrealized gains(losses)                          5,700               0               0           2,678
                                                    --------        --------        --------        --------
          Total Investment Securities             $  364,166      $  207,495      $  188,595      $  242,823
                                                    ========        ========        ========        ========

</TABLE>
<TABLE>
Note 4.  Loans (Net of Unearned Income)
<CAPTION>
                                                                  September 30,   September 30,
(Dollars in thousands)                                                   1998            1997
---------------------------------------------------------------------------------------------
<S>                                                               <C>             <C>
     Construction and Land Development                            $   38,867      $   27,925
     Residential Real Estate - Mortgages                             153,675         182,628
     Commercial Real Estate - Mortgages                              134,267         134,851
     Commercial                                                       80,877          80,220
     Consumer                                                         53,742          23,636
                                                                    --------        --------
          Total Loans                                             $  461,428      $  449,260
                                                                    ========        ========
</TABLE>
<TABLE>
Note 4.  Allowance for Credit Losses
<CAPTION>
(Dollars in thousands)                                                   1998            1997
---------------------------------------------------------------------------------------------
<S>                                                               <C>             <C>
     Balance at January 1                                         $    5,231      $    5,167
     Provision for the year                                            3,614              96
     Recoveries on loans                                                 417             343
                                                                     -------         -------
          Total                                                        9,262           5,606

     Less loans charged off                                            2,992             349
     Allowance of purchased company                                    2,923               0
                                                                     -------         -------
     Balance at September 30                                      $    9,193      $    5,257
                                                                     =======         =======

     The appropriateness of the allowance for possible credit losses is determined based on a quarterly detailed
     review of the loan portfolio, off-balance sheet commitments, and recent economic projections.
</TABLE>
MASON-DIXON BANCSHARES, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED


Note 5.	Per Share Amounts

	On December 31, 1997, the Company adopted FASB Statement No. 128, 
"Earnings Per Share".  Statement 128 establishes standards for computing and 
presenting earnings per share ("EPS") that simplify the standards previously 
followed in Accounting Principals Board Opinion No. 15.  It replaces the 
former presentation of primary EPS with a presentation of basic EPS and, where 
applicable, requires the dual presentation of basic and diluted EPS on the 
face of the income statement.  Basic EPS is generally computed by dividing net 
income by the weighted average number of common shares outstanding for the 
period, whereas diluted EPS essentially reflects the potential dilution in 
basic EPS that could occur if other contracts to issue common stock were 
exercised.  Per share amounts are based on the weighted average number of 
shares outstanding during the year.


Note 6.	Comprehensive Income

	On January 1, 1998, the Company adopted Statement of Financial Accounting 
Standards No. 130, "Reporting Comprehensive Income".  Comprehensive income, as 
defined by Statement 130, is the change in equity of a business enterprise 
during a reporting period from transactions and other events and circumstances 
from non-owner sources.  In addition to an enterprise's net income, change in 
equity components under comprehensive income reporting would also include such 
items as the net change in unrealized gain or loss on available-for-sale 
securities and foreign currency translation adjustments.  Statement 130 
requires disclosure of comprehensive income and its components with the same 
prominence as the Company's other financial statements.


ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND 
RESULTS OF OPERATIONS

	MASON-DIXON BANCSHARES, INC.


FORWARD LOOKING STATEMENTS
	This section of the report may contain forward looking statements within 
the meaning of the Private Securities Litigation Act of 1995. Certain 
statements are included which may relate to management's beliefs, 
expectations, anticipations and plans concerning, among other things, economic 
trends, interest rates, Year 2000 issues, and other matters. Such statements 
are subject to numerous uncertainties including the effects of monetary 
policies, regulatory changes, levels of inflation, unemployment, consumer 
confidence and the health of commercial and residential real estate values in 
Mason-Dixon's market area. There can be no assurance that future events will 
develop in accordance with any forward looking statements contained herein.
SUMMARY
	Mason-Dixon Bancshares, Inc., reported net income of $2.236 million for 
the third quarter ended September 30, 1998, a decrease of 2% from the same 
period last year.  Earnings per share (basic and diluted) were $.44, a 2% 
decrease from the third quarter 1997. The results for quarter reflect the 
effects of a restructuring charge for severance costs which reduced reported 
net income by $285 thousand. The restructuring is related to further 
consolidation of certain administrative and executive functions of the bank 
affiliates. Core operating net income (net income excluding the restructuring 
charge) was $2.521 million, an increase of 10% over third quarter 1997.  
Diluted earnings per share on core operating net income was $.50, up 11% from 
$.45 for the same period of 1997.
	For the nine months ended September 30, 1998, net income totaled $8.084 
million compared to $6.712 million for the nine months ended September 30, 
1997 (+20%). On a per share basis, net income increased 23% to total $1.59 
versus $1.29 for the same period of 1997. For the nine months ended September 
30, 1998 core operating net income (net income excluding non-recurring charges 
and gains)  operations totaled $7.419 million, up 11% from the same period in 
1997, and diluted earnings per share totaled $1.46 (+13%). 
	Reported results for the third quarter and the year included several 
significant events.  On June 19, 1998 the sale of five branches on Maryland's 
Eastern Shore was completed and added after tax net income of $3.687 million 
($.73 per share).  Offsetting the gain on the sale of the branches were after 
tax charges to recognize the company's estimated year 2000 costs ($430 
thousand or $.08 per share), a write-down of mortgage sub-servicing rights 
($516 thousand or $.10 per share), the restructuring charge mentioned above 
($285 thousand or $.06 per share) and increases in the provision for credit 
losses which was largely driven by changes in charge-off policy for the 
recently acquired consumer finance receivables ($1.791 million or $.35 per 
share).
STATEMENT OF CONDITION
	Total assets as of September 30, 1998 were $1.083 billion, up 9% from 
December 31, 1997 and up 10% from September 30, 1997.  The percentage changes 
reflect the purchase of Rose Shanis Financial Services, LLC which added 
approximately $48 million in total assets, and the sale of five branches which 
reduced total assets by approximately $80 million. Both of these transactions 
occurred in 1998. Loans outstanding have increased $1 million since December 
31, 1997 and increased $12 million (3%) since September 30, 1997. Changes in 
loans outstanding include to purchase of approximately $43 million in loans 
related to the Rose Shanis acquisition, and the sale of approximately $59 
million for the sale of branches.  Excluding these events, loans outstanding 
have increased 6% since September 30, 1997 and 4% since December 31, 1997. 
Investment securities increased by $99 million (22%) from year end 1997 and 
$102 million (23%) since September 30, 1997. Deposits have decreased $38 
million (6%) from year end, and $35 million (6%) compared to September 30, 
1997 due to the sale of the branches which held approximately $89 million in 
total deposits. Excluding the sale of the branches, deposits increased 8% from 
year end and September 30, 1997. Borrowing increased $120 million (46%) since 
year end, with borrowings associated with the acquisition of Rose Shanis 
adding $28 million. Since September 30, 1997, borrowings increased by $125 
million, which includes the $28 million associated with the acquisition. 
Higher levels of investments and borrowings are also related to sale of the 
branches on the Eastern Shore, replacing the loans and deposits which were 
sold and recapturing some of the revenue lost as a result of the sale. 
Stockholders' equity increased $6.2 million from year end 1997. Earnings added 
$8.1 million to stockholders equity, while cash dividends have reduced equity 
by $2.6 million.  Increases in accumulated comprehensive income were $1.3 
million since year end.  Net shares repurchased in 1998 decreased equity by 
$500 thousand.
INCOME STATEMENT - THIRD  QUARTER
	Net interest income increased by $1.484 million (19%) due to normal growth 
in earning assets as well as the acquisition of the consumer finance company. 
The net interest margin on earning assets increased 14 basis points to 4.10% 
for the quarter. The increased spread was primarily attributable to the 
acquisition of Rose Shanis, which has higher overall interest spreads. Average 
earning assets increased $108 million (12%) while interest bearing liabilities 
increased $119 million (15%).
	The provision for credit losses totaled $125 thousand for the quarter 
compared to credit of $12 thousand for the third quarter of 1997.  The 
increase resulted primarily from increased chargeoffs for consumer finance 
receivables. 
	Total other operating income increased $446 thousand.  Service charge 
income decreased by $91 thousand, mostly due to the sale of the Eastern Shore 
branches which resulted in lower level of transaction accounts. Gains on sales 
of mortgage loans declined by $45 thousand as the loan origination levels of 
the Mortgage Banking Division of Carroll County Bank and Trust Company (Mason-
Dixon Bancshares Mortgage Company) declined slightly.  Trust Division income 
grew by $37 thousand or 10% due to growth in accounts under management.  
Securities gains increased by $122 thousand.  All other sources of operating 
income increased by $423 thousand or 90% which reflect increased revenue from 
the sales of annuities and mutual funds, as well as fee income generated from 
consumer finance activities.
	Total other operating expenses increased by $2.030 million or 30%. Most 
areas of other operating expenses increased and reflect the additional 
expenses associated with normal increases in overhead, the acquisition of Rose 
Shanis, and decreases resulting from the sale of the branches on the eastern 
shore. Salaries and benefits increased by $1.451 million, and includes the 
restructuring charge discussed above ($485 thousand before taxes) as well as 
additional salaries at Rose Shanis ($990 thousand).  Occupancy expenses were 
$45 thousand higher while equipment expenses grew by $151 thousand, with due 
to normal increases in these expense categories and Rose Shanis adding higher 
expenses.  Other expenses grew $453, with Rose Shanis adding $467 to expenses 
in this category in the third quarter.
INCOME STATEMENT - YEAR-TO-DATE
	Net interest income increased $5.095 million (22%) due to growth in 
earning assets and increased interest spreads.  Average year-to-date earning 
assets grew by $149 million (18%) while interest bearing liabilities increased 
$142 million (19%). The net interest margin for the first nine months of 1998 
was 4.10%, an increase of 14 basis points compared to the same period of 1997. 
 Margins increased as a result of the acquisition of Rose Shanis.
	The provision for credit losses totaled $3.614 million compared to $96 
thousand for the first nine months of 1997. The significant increase resulted 
from increased chargeoffs for consumer finance receivables ($2.2 million) and 
additional provisions ($900 thousand) recorded in recognition of potential 
credit risks relating to loans with Year 2000 exposure.  The increase in 
chargeoffs was related to a change in chargeoff policy for consumer finance 
receivables. The former policy called for a loan to be charged off at 270 days 
delinquent.  The policy was changed during the second quarter to chargeoff 
loans at 180 days delinquent.  The change was made to align the policy with 
more conservative practices. As a result of the change, delinquency levels and 
coverage ratios of the consumer finance receivables improved significantly.
	Total other operating income was $13.950 million, an increase of $8.281 
million.  Excluding the one-time gain on sale of branches, the increase 
totaled $1.564 million (28%). Service charges decreased $114 thousand.  Trust 
division revenue increased $151 thousand (14%) due to increases in accounts 
under management.  Gains on sales of mortgage loans increased $287 thousand 
(24%) due to the expansion of the mortgage banking division of Carroll County 
Bank and Trust Company and increased refinance activities. Gains on sales of 
securities were $505 thousand versus $334 thousand for the nine months of 
1997.  All other sources of operating income increased $1.069 million (76%) 
due to increased income from the acquired consumer finance company ($1.015 
million), as well as increased sales of mutual funds and annuities.
	Total other operating expenses increased $7.311 million. Excluding non-
recurring items of  $2.005 million, other operating expenses increased by 
$5.306 million.  Additional expenses of Rose Shanis totaled $4.114 million.  
The non-recurring items included a $700 thousand (pretax) charge for estimated 
costs for the company to remedy operating issues surrounding the Year 2000 
issue.  Mason-Dixon elected to recognize this expense during the second 
quarter due to the increased certainty of these expenses and the greater 
accuracy in the projections of the actual costs. Non-recurring items also 
reflected a charge of $841 thousand (pretax) related to a change in valuation 
method of mortgage sub-servicing rights.  This method change more closely 
aligns the carrying value of these rights to current market rates of interest 
as well as recently quoted market values. A restructuring charge discussed 
above was recognized in the third quarter which totaled $485 thousand. 
All areas of other operating expenses increased with the exception of legal 
and professional fees .
CAPITAL ADEQUACY
	At the end of the quarter, the Company's capital leverage ratio was 8.79%, 
up slightly from 8.74% at the end of the year.  Tier 1 and Total Risk-based 
ratios were 14.78% and 18.25% respectively compared to 14.74% and 15.64% at 
December 31, 1997.  Regulatory minimums to qualify as "well capitalized" are 
5% for capital leverage, 6% for Tier 1 Risk-based, and 10% for Total Risk-
based capital.  In April of 1998, Mason-Dixon completed a $20 million offering 
of Trust Preferred securities.  These instruments were issued to pay off a 
portion of the short-term borrowings of the consumer finance company. Of the 
$20 million issued, approximately $5 million qualified at September 30, 1998 
as Tier 1 capital, and the remaining $15 million qualified as Tier 2 capital. 
Trust Preferred securities that qualify as Tier 1 capital are limited by 
regulatory definition to a maximum of one-third of total Tier 1 capital 
elements.
MARKET RISK DISCLOSURES - INTEREST RATE SENSITIVITY
	At the end of the quarter, Mason-Dixon had an estimated one year positive 
gap of $106.3 million on a consolidated basis, which totaled about 10% of 
assets.  The positive one year gap at the end of the last quarter was $75 
million or 7% of total assets.  The increase is attributable to longer term 
fixed rate borrowings and significant increases in the prepayment assumptions 
on fixed rate loans and investment securities.  This is due to current low 
level of interest rates, with most securities with call features assumed to be 
called and prepayment assumptions on mortgage backed securities accelerated. 
An increase in interest rates would change assumptions relating to callable 
securities and likely slow assumed prepayments on mortgage backed securities. 
Management believes the overall rate sensitivity position is appropriate for 
current rate conditions.
	Mason-Dixon tests its interest rate sensitivity through the deployment of 
simulation analysis. An earnings simulation model is used to estimate what 
effects specific interest rate changes would have on one year of net interest 
income. Derivative financial instruments, such as interest rate swaps, are 
included in the analysis. Interest rate caps and floors on certain products 
are included to the extent they become effective within one year.  Changes in 
prepayment assumptions have been included where changes in payment behavior 
pattern is assumed to be different to the simulation. Call features on certain 
securities are based on their projected call probability in view of the 
assumed rate environment. At September 30, 1998 Mason-Dixon's estimated 
earnings profile reflected a modest sensitivity to interest rate changes. 
Based on an assumed 100 basis point immediate increase in interest rates, 
Mason-Dixon's pretax net interest income would increase by $1.945 million 
(5.1%) if rates were to increase by 100 basis points, and decline by $1.208 
million (3.1%) should rates fall by 100 basis points.
YEAR 2000 PREPAREDNESS
	Mason-Dixon continued its progress in preparing for the Year 2000 during 
the third quarter of 1998.  The Year 2000 Issue is the result of computer 
programs and equipment which are dependent on using two digits rather than 
four to define any particular year.  Any of Mason-Dixon's computer programs or 
other equipment that are date dependent may recognize a date using "00" as the 
Year 1900 rather than the Year 2000.  This could result in a system failure or 
miscalculations causing disruptions of operations, a temporary inability to 
process transactions, send invoices, or engage in similar normal business 
activity.
	Mason-Dixon has had in place a task force which has been preparing 
information technology (IT) systems, as well as non-IT systems for over a 
year. Representatives of the task force regularly update Mason-Dixon's Senior 
Management and Board of Directors with progress reports which outline progress 
and future timetables for completion of critical phases of the project of the 
Year 2000 project.  Mason-Dixon adopted a Year 2000 plan developed by its task 
force in accordance with guidelines set forth by the Federal Financial 
Institutions Examination Council (FFIEC).  Mason-Dixon expects that all phases 
of its Year 2000 plan will be completed by the deadlines established by the 
FFIEC.
	The initial "assessment" phase of the Year 2000 project began in 1997 and 
included an inventory of all systems (IT and non-IT) with potential Year 2000 
risk.  Critical IT systems, which include item processing, communications with 
the Federal Reserve ("Fedline"), and core loan and deposit processing systems 
were identified.  Critical non-IT systems which include telephone and internal 
communications systems, ATM's, and payroll were also identified. Vendors who 
provide various systems were contacted to assess their year 2000 readiness.  
Mason-Dixon has completed its review of customized computer code included in 
the data processing system provided by its primary supplier of data processing 
services.  The assessment phase is complete, although it is updated 
periodically as necessary.
	During the most recent quarter, the project progressed with the renovation 
and/or replacement of systems to achieve Year 2000 readiness and the testing 
of all critical and non-critical systems. 
	Test scripts were completed for testing critical software during the most 
recent quarter.  Mason-Dixon has completed testing of a significant number of 
systems as of October 31, 1998.  Mason-Dixon expects to complete testing all 
critical applications by March 31, 1999.  Mason-Dixon expects to complete 
testing all systems (critical and non-critical) by September 30, 1999.  From 
vendor responses and/or certifications of Year 2000 compliance, Mason-Dixon 
has determined that several critical IT and non-IT systems will have to be 
modified to achieve Year 2000 readiness or replaced with Year 2000 compliant 
systems.  Mason-Dixon does not perform in-house programming, and thus is 
dependent on external vendors to modify customized software code.  Mason-
Dixon's primary supplier of data processing services had adopted a Year 2000 
plan and timetable and has provided written assurances to Mason-Dixon of its 
progress and intention to achieve Year 2000 readiness of both its standard 
system and customized computer code by April 1, 1999.  Mason-Dixon expects 
that non-compliant systems will be replaced or renovated prior to January 1, 
2000.
	The contingency planning phase of Mason-Dixon's Year 2000 project began 
during the third quarter of this year and is expected to be completed by the 
end of January 1999. This process will require the establishment of plans to 
prepare for the most reasonable likely worst case Year 2000 scenarios. While 
not certain, contingency plans will likely range from the selection of 
alternative vendors with capacity to convert non Year 2000-compliant systems 
to compliant systems prior to the end of 1999, to manual procedures to process 
critical systems where transactions or volumes are limited.
	The expected cost of modifications and replacements to non-compliant 
systems is currently estimated to be between $700,000 and $1,000,000 and is 
being funded through operating cash flows. To date, direct expenses related to 
the Year 2000 issue have been less than $100,000 and does not include any 
internal personnel costs.  In the second quarter, Mason-Dixon recorded a 
charge to earnings of $700,000 for these estimated costs.
	During the second quarter of 1998, Mason-Dixon completed a review of the 
Year 2000 readiness of all significant borrowers.  Mason-Dixon has determined 
that the ability of some of Mason-Dixon's customers to repay their obligations 
to Mason-Dixon may be impaired by their ability to remedy their own Year 2000 
issues.  Mason-Dixon does not anticipate that such impairment will be 
significant enough to materially impact the financial position of Mason-Dixon. 
 Mason-Dixon's monitoring of credit risk attributable to the Year 2000 issue 
continued during the third quarter of 1998, and resulted in a year-to-date 
increase in the allowance for credit losses of approximately $900,000.
	Mason-Dixon has distributed surveys to determine the Year 2000 readiness 
of significant funds providers to Mason-Dixon.  Responses have been received 
from a significant number of these providers, however, since Mason-Dixon's 
assessment process is not yet complete, the potential for unplanned reductions 
in the availability of funds from significant funding sources that have not 
taken appropriate steps to manage their own Year 2000 problems exists.  Most 
of the significant funds providers are banks or bankers banks which are 
subject to regulatory oversight relating to the Year 2000 issue.  Follow-up 
and assessment of the Year 2000 readiness of significant funds providers will 
continue until determination of Year 2000 readiness is made.  Contingency 
plans will be developed to provide alternative funding sources should funds 
providers fail to provide adequate assurance of Year 2000 readiness.
	Management of Mason-Dixon believes that the potential effects on Mason-
Dixon's internal operations of the Year 2000 problem can and will be addressed 
prior to the year 2000.  However, if required modifications or conversions are 
not made or are not completed on a timely basis prior to the year 2000, the 
Year 2000 problem could disrupt normal business operations.  The most 
reasonable likely worst case Year 2000 scenarios foreseeable at this time 
would include Mason-Dixon temporarily not being able to process, in some 
combination, various types of customer transactions.  This could affect the 
ability of Mason-Dixon to, among other things, originate new loans, post loan 
payments, accept deposits or allow immediate withdrawals, and, depending on 
the amount of time such a scenario lasted, could have material adverse effects 
on Mason-Dixon.
	Ultimately, the success of Mason-Dixon's efforts to address the Year 2000 
issue depends to a large extent not only on the corrective measures that 
Mason-Dixon undertakes, but also on the efforts undertaken by businesses, 
government entities, and other independent entities who provide data to, or 
receive data from, Mason-Dixon, such as borrowers, vendors or deposit 
customers.  In particular, Mason-Dixon's credit risk associated with its 
borrowers may increase as a result of problems such borrowers may have 
resolving their own Year 2000 issues.  Although it is not possible to evaluate 
the magnitude of any potential increased credit risk at this time, the impact 
of the Year 2000 issue on borrowers could result in increases in problem loans 
and credit losses in future years.
	The entire cost of the project and projected completion dates are based on 
management's best estimates, which were derived using numerous assumptions of 
future events. There can be no guarantee that these estimates will be achieved 
and actual results could materially differ from the estimates. Factors that 
might affect the timely and efficient completion of Mason-Dixon's Year 2000 
projects include, but are not limited to, vendors' abilities to adequately 
correct or convert software and the effect on Mason-Dixon's ability to test 
its systems, the availability and the cost of personnel trained in the Year 
2000 area, and the ability to identify and correct all relevant computer 
programs and similar uncertainties.

	 Bank regulatory agencies have recently issued additional guidance under 
which they are assessing Year 2000 readiness.  The failure of a financial 
institution to take appropriate action to address deficiencies in the Year 
2000 project management process may result in enforcement actions which could 
have a material adverse effect on Mason-Dixon, result in civil money penalties 
or result in the delay of applications seeking to acquire other entities or 
otherwise expand activities.
ITEM 6b.  REPORTS ON FORM 8-K	
	On October 16, 1998, Mason-Dixon filed on Form 8-K its planned acquisition 
of Sterling Bancorp.  This event was reported under Item 2 on Form 8-K.
 



 

 

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                              SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.




                                  MASON-DIXON BANCSHARES, INC.




November 13, 1998                 /s/ Thomas K. Ferguson
                                  By: Thomas K. Ferguson
                                  President/Chief Executive Officer





November 13, 1998                 /s/ Mark A. Keidel
                                  By: Mark A. Keidel
                                  Vice President/Chief Financial Officer